Wireless Feasibility Study

Wireless Feasibility Study Prepared for the City of Tucson Tucson, Arizona

May 2007

Columbia Telecommunications Corporation 5550 Sterrett Place, Suite 200 Columbia, MD 21044 410.964.5700 * www.internetCTC.com

all text and diagrams ©CTC 2007

Abstract The City of Tucson, Arizona, ranks third in the United States on the 2006 Digital Cities Survey,1 which examines how city governments are using digital technologies to better serve their citizens and streamline operations. This notable achievement highlights the emphasis the City of Tucson places on using emerging technologies to communicate with the residents and businesses of Tucson. To build upon this achievement, the City is researching methodologies to increase the affordability and availability of connectivity services for residences and small businesses. High-speed Internet access is a basic necessity because it provides the means for access to information anywhere, anytime. Unfortunately, many Tucson residents and business owners find themselves without access to this vital service either because of high monthly access costs or broadband service deployment policies that leave their area without service. Just as water and electricity are critical public services, high-speed Internet access is rapidly emerging as a new type of basic public service This report evaluates the opportunities to encourage a private sector provider to implement a City-wide WiFi network to deliver low-cost high-speed Internet access to residents and business. In addition, this report details the current use of Internet by residences and business, outlines the existing Internet providers and services, reviews strategies to leverage community assets, details a conceptual WiFi design, and describes key business model elements.

1

Conducted by the National League of Cities (NLC) and the Center for Digital Government. See http://www.centerdigitalgov.com/surveys.php?survey=cities

Tucson AZ Wireless Feasibility

i all text and diagrams ©CTC 2007

Table of Contents Abstract............................................................................................................................ i Table of Contents............................................................................................................. i List of Tables................................................................................................................... v 1. Executive Summary.............................................................................................6 1.1 Study Methodology ..............................................................................................6 1.2 Study Goals .........................................................................................................7 1.3 Potential Benefits of a City-Wide WiFi Network....................................................8 1.4 Anticipated Costs.................................................................................................9 1.5 Summary of Study Recommendations.................................................................9 1.5.1 Leverage Marketing Assets and Resources to Attract the Investment for a Citywide WiFi Network.......................................................................................11 1.5.2 Select the Appropriate Balance of Risk and Control Which Meets the Identified Objectives..........................................................................................................11 1.5.3 Use the Market Research Findings to Demonstrate the Extent of the Potential Market ...............................................................................................................13 1.5.4 Release and Publicize the RFP Widely..............................................................14 1.5.5 Require a Robust Digital Inclusion Program Focused on Scalable Service........15 1.5.6 Plan for Incremental Fiber Deployment to Meet Long-Term Broadband Goals ..17 2. Market Assessment ...........................................................................................19 2.4 Residential Survey Results ................................................................................22 2.4.1 Residential Computer and Internet Characteristics ............................................24 2.4.2 Residential Internet Uses...................................................................................31 2.4.3 Residential Internet Providers and Price ............................................................32 2.4.4 Residential Internet Aspects ..............................................................................35 2.4.5 Residential Willingness to Switch Internet Providers..........................................39 2.4.6 Residential Perceptions .....................................................................................45 2.4.7 Residential Demographics .................................................................................48 2.5 Business Survey Results ...................................................................................51 2.5.1 Business Characteristics....................................................................................51 2.5.2 Business Internet Service ..................................................................................53 2.5.3 Business Internet Aspects .................................................................................65 2.5.4 Business Willingness to Switch Internet Providers .............................................67 2.5.5 Business Perceptions ........................................................................................73 3. Competitive Provider Assessment .....................................................................75 3.1 “Pipe” Versus “Services” ....................................................................................75 3.2 Availability and Gaps for Internet Access...........................................................76 3.2.1 DSL ...................................................................................................................76 3.2.2. Cable Modem ....................................................................................................76 3.2.3 Satellite..............................................................................................................77 3.2.4 Wireless -- Fixed................................................................................................77 3.2.5 Wireless – EVDO/3G .........................................................................................77 3.3 WiFi Hot Spots Locations...................................................................................78 3.4 Existing Networks and Services.........................................................................79 3.4.1 The Phone Company: Qwest ............................................................................79 3.4.2 The DSL Resellers.............................................................................................80 3.4.3 The Cable Companies: Cox and Comcast ........................................................81 3.4.4 Cable Modem Resellers.....................................................................................81 3.4.5 Satellite Broadband Providers: Dish Network and HughesNet ..........................82 Tucson AZ Wireless Feasibility

i all text and diagrams ©CTC 2007

3.4.6 3.4.7 3.4.8 3.5 4. 4.1 4.1.1 4.1.2 4.2 4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 4.3 5. 5.1 5.2 5.2.1 5.2.2 5.3 6. 6.1 6.2 6.3 6.4 7. 7.1 7.2 7.2.1 7.2.2 7.2.3 7.2.4 7.2.5 7.2.6 7.3 7.3.3 7.3.4 7.3.5 7.4

Dial-Up Telephone Providers.............................................................................82 Wireless (Fixed) Providers.................................................................................83 Wireless (EVDO) Providers ...............................................................................84 High Capacity Transport Providers ....................................................................84 Leverage Existing Assets...................................................................................85 Reducing Operating Costs.................................................................................85 Pole Attachment/Energy Cost ............................................................................85 Reduce Customer Acquisition Costs..................................................................87 Reducing the Required Investment....................................................................88 Conduit ..............................................................................................................88 Antenna Mounting Facilities...............................................................................88 City of Tucson Buildings ....................................................................................88 Staff Resources/Expertise .................................................................................89 Pole Attachments...............................................................................................89 Increasing the Number of Subscribers ...............................................................90 Conceptual WiFi Design ....................................................................................91 WAP Density Factors.........................................................................................95 City-Wide Wireless Cost Estimate .....................................................................96 Low Density WAP Approach..............................................................................98 High Density WAP Approach ...........................................................................104 Downtown Wireless Cost Estimate ..................................................................107 Digital Inclusion ...............................................................................................109 Digital Divide Defined ......................................................................................109 Example Digital Divide Approaches .................................................................111 Education System Needs.................................................................................112 Internet Application vs. Service Bundling Savings............................................112 Business Model Considerations and Analysis..................................................115 Summary of Potential Business Model Elements.............................................115 Comparison of WiFi Projects ...........................................................................120 Primary Drivers................................................................................................121 Public Safety and Internal Communications Uses............................................121 Reliability, Availability, and Expandability.........................................................122 Retail Services and Digital Inclusion ................................................................123 Business Model Attributes ...............................................................................124 Models Do Not Necessarily Apply to Other Communities.................................126 Financial Analysis ............................................................................................127 Financing Assumptions....................................................................................132 Implementation Cost Assumptions .................................................................133 Expense Assumptions .....................................................................................133 Tempe, AZ Example ........................................................................................139

Appendix A: Residential Frequencies and Crosstabs .................................................142 Appendix B: Business Frequencies and Crosstabs ....................................................143 Appendix C: Wireless Technologies ...........................................................................144 Appendix D: Tucson Hot Spots ..................................................................................145 Appendix E: Interview Summaries..............................................................................146 Appendix F: Tucson Connectivity Providers ...............................................................147 Appendix G: Cost-Benefit Analysis Low-Density WAP Approach ...............................148 Appendix H: Cost-Benefit Analysis High-Density WAP Approach...............................149 Appendix I: Estimated Tucson Costs to Support a Private WiFi Deployment ..............150


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List of Figures Figure 1-1: Balance of Risk and Control...................................................................................... 12 Figure 1-2: Correlation of Computer and Internet vs. Income ..................................................... 16 Figure 1-3: Wireless Access-Prediction 1 .................................................................................... 17 Figure 1-4: Wireless Access-Prediction 2 .................................................................................... 18 Figure 2-5: Residential Survey Respondents................................................................................ 23 Figure 2-6: Households with a Computer..................................................................................... 24 Figure 2-7: Residential Survey Respondents with a Computer at Home .................................... 25 Figure 2-8: Households with Internet Access............................................................................... 25 Figure 2-9: Type of Internet Access in Households ..................................................................... 26 Figure 2-10: Residential Survey Respondents - Type of Internet Access at Home ..................... 27 Figure 2-11: Correlation of Computer and Internet vs. Income ................................................... 28 Figure 2-12: Correlation of School Aged Children in Home vs. Computer and Internet............. 28 Figure 2-13: Correlation of Age vs. Computer and Internet ........................................................ 29 Figure 2-14: Internet Speed Perception........................................................................................ 30 Figure 2-15: Internet Connection Type vs. Speed Satisfaction .................................................... 30 Figure 2-16: Residential Internet Use........................................................................................... 31 Figure 2-17: Residential Internet Market Shares.......................................................................... 32 Figure 2-18: Residential Internet Provider Customers ................................................................. 33 Figure 2-19: Internet Prices vs. Internet Provider ........................................................................ 34 Figure 2-20: Importance of Internet Characteristics..................................................................... 35 Figure 2-21: Satisfaction of Internet Characteristics.................................................................... 36 Figure 2-22: Comparison of Importance and Satisfaction of Internet Characteristics ................. 37 Figure 2-23: Willingness to Switch Internet Providers ................................................................ 39 Figure 2-24: Willingness to Switch Internet Providers for Under $25 per Month....................... 40 Figure 2-25: Willingness to Switch Internet Providers for Over $41 per Month......................... 41 Figure 2-26: Willingness to Switch Internet Providers ................................................................ 42 Figure 2-27: Willingness to Switch (20x) vs. Current Internet Connection................................. 43 Figure 2-28: Willingness to Switch (Wireless) vs. Current Internet Connection......................... 43 Figure 2-29: Willingness to Switch (Wireless) vs. Age ............................................................... 44 Figure 2-30: Main Tucson Role in Wireless Internet ................................................................... 45 Figure 2-31: Tucson Roles in Wireless Internet........................................................................... 46 Figure 2-32: Role of the Internet .................................................................................................. 47 Figure 2-33: Respondents with Children under 18 Attending School.......................................... 48 Figure 2-34: Type of Home.......................................................................................................... 49 Figure 2-35: Age Group of Respondents...................................................................................... 49 Figure 2-36: Years at Current Address......................................................................................... 50 Figure 2-37: Gender of Respondent ............................................................................................. 50 Figure 2-38: Location of Business Respondents .......................................................................... 51 Figure 2-39: Number of Employees ............................................................................................. 52 Figure 2-40: Number of Employees - Location............................................................................ 52 Figure 2-41: Industry Category .................................................................................................... 53 Figure 2-42: Internet Access at Business ..................................................................................... 54 Figure 2-43: Internet Access vs. Business Type........................................................................... 54 Figure 2-44: Internet Access vs. Number of Employees.............................................................. 55 Figure 2-45: Internet Uses ............................................................................................................ 55 Figure 2-46: Business Telecommuting Policy.............................................................................. 56 Figure 2-47: Business Locations vs. Allowing Telecommuting .................................................. 57 Figure 2-48: Importance of the Internet ....................................................................................... 58 Figure 2-49: Type of Internet Connection.................................................................................... 59 Tucson AZ Wireless Feasibility

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Figure 2-50: Type of Internet Connection by Location................................................................ 60 Figure 2-51: Business Type vs. Internet Connection ................................................................... 61 Figure 2-52: Internet Speed Perception........................................................................................ 61 Figure 2-53: Internet Connection vs. Speed satisfaction.............................................................. 62 Figure 2-54: Business Internet Market Shares ............................................................................. 62 Figure 2-55: Business Internet Provider Customers..................................................................... 63 Figure 2-56: Tucson Role in Wireless Internet ............................................................................ 63 Figure 2-57: Internet Connection vs. Monthly Price.................................................................... 64 Figure 2-58: Location of Connectivity Decisions ........................................................................ 64 Figure 2-59: Importance of Internet Aspects................................................................................ 65 Figure 2-60: Satisfaction with Internet Aspects ........................................................................... 66 Figure 2-61: Comparison of Importance and Satisfaction of Internet Aspects ............................ 66 Figure 2-62: Willingness to Switch Internet Providers ................................................................ 68 Figure 2-63: Willingness to Switch Internet Providers for Under $25 per Month....................... 69 Figure 2-64: Willingness to Switch Internet Providers ................................................................ 70 Figure 2-65: Willingness to Switch Internet Providers ................................................................ 71 Figure 2-66: Willingness to Switch Providers vs. Type of Connection ....................................... 72 Figure 2-67: Tucson Main Role in Wireless Internet ................................................................... 73 Figure 2-68: Tucson Roles in Wireless Internet........................................................................... 74 Figure 2-69: Role of the Internet .................................................................................................. 74 Figure 3-1: Identified WiFi Hot Spots.......................................................................................... 78 Figure 4-1: Solar Power Wireless Access Point Example............................................................ 86 Figure 5-1: Total Cost vs. Implementation Strategy .................................................................... 92 Figure 5-2: Roof Top External CPE Installation.......................................................................... 93 Figure 5-3: Antenna Mast Mounting of External CPE................................................................. 94 Figure 5-4: Side of House External CPE Installation................................................................... 94 Figure 5-5: Tropos Configuration ................................................................................................ 99 Figure 5-6: Sky Pilot Configuration ........................................................................................... 102 Figure 5-7: Downtown Coverage Options ................................................................................. 108


iv all text and diagrams ©CTC 2007

List of Tables Table 2-1: Residential Weighting Calculations............................................................................ 22 Table 2-2: Significance of Importance and Satisfaction Gaps of Internet Characteristics........... 38 Table 2-3: Significance of Importance and Satisfaction of Internet Aspects ............................... 67 Table 5-1: Total Implementation Cost vs. Implementation Strategy ........................................... 92 Table 5-2: Cost Estimate per Home Passed ............................................................................. 93 Table 5-3: Comparison of WAP Strategies .............................................................................. 95 Table 5-4: Estimated Tucson Households ............................................................................... 97 Table 5-5: Cost Estimate – Low Density WAP Approach (Tropos Equipment) ...................... 100 Table 5-6: Cost Estimate – Low Density WAP Approach (Sky Pilot Equipment)................... 103 Table 5-7: Cost Estimate – High Density WAP Approach (Tropos Equipment)...................... 105 Table 5-8: Cost Estimate – High Density WAP Approach (Sky Pilot Equipment) .................. 107 Table 5-9: Downtown Coverage Cost Estimate ........................................................................ 108 Table 6-1: DSL and Telephone vs. WiFi and VoIP ................................................................... 114 Table 7-1: Turkey or Gravy........................................................................................................ 121 Table 7-2: Public Safety Communication Support..................................................................... 122 Table 7-3: Internal Communication Support............................................................................. 122 Table 7-4: Retail Service and Digital Inclusion ........................................................................ 124 Table 7-5: Business Model Attributes....................................................................................... 125 Table 7-6: Sensitivity Analysis: Low-Density WAP Approach................................................. 130 Table 7-7: Sensitivity Analysis: Low-Density WAP Approach................................................. 130 Table 7-8: Staff Allocations and/or Additions ........................................................................... 134 Table 7-9: Operating and Maintenance Expenses: Low-Density WAP Approach .................... 134 Table 7-10: Operating and Maintenance Expenses: High-Density WAP Approach.................. 135 Table 7-11: Projected Income: Low-Density WAP Approach................................................... 136 Table 7-12: Projected Income: High-Density WAP Approach .................................................. 137 Table 7-13: Projected Cash Flow: Low-Density WAP Approach.............................................. 138 Table 7-14: Projected Cash Flow: High-Density WAP Approach............................................. 139 Table 7-15: Outdoor Roaming WiFi Services............................................................................ 140 Table 7-16: Residential and Outdoor Roaming WiFi Services .................................................. 140


v all text and diagrams ©CTC 2007

1. Executive Summary The City of Tucson seeks to fill gaps in coverage, encourage new uses of technology, leverage the mobility of WiFi and enhance the availability of a cost-efficient Internet access solution for residents and small businesses. To that end, the City of Tucson engaged Columbia Telecommunications Corporation (CTC) to assist with evaluating whether to issue a Request for Proposal (RFP) to encourage the private sector to build and operate a Citywide WiFi network to deliver an affordable high-speed Internet offering. This report was prepared by CTC in early 2007 to evaluate the potential for Citywide WiFi. This project is designed to help realize the City’s vision for its technical future in which: 1.

Tucson is a connected community, where all people have an equal opportunity to participate in civic affairs through all means possible, at all times possible, in all places possible.

2.

Tucson is a place where community connections and the quality of life are enhanced by access to high-speed Internet access anywhere, at any time, by anyone.

3.

Tucson is a community-wide Internet hot spot where all thrive civically and economically for a lifetime.

1.1

Study Methodology

To adequately conduct this analysis, CTC’s staff of engineers and analysts undertook the following tasks: •

•

Conducted telephone surveys of randomly selected businesses and residents. The surveys were constructed to evaluate consumer use of Internet access, what services are used, and interest in a low-cost wireless offering. Conducted in-person interviews with the City, school districts, and other agencies including: o o o o o o o o o o

Community Services Department – City of Tucson Pima County Community College Pima County – Information Technologies Tucson Convention Center - City of Tucson Tucson Regional Economic Opportunities Tucson Unified School District Tucson Wi-Fi Alliance University of Arizona – Information Technologies Vail School District Visitors and Convention Bureau


6 all text and diagrams ©CTC 2007

• • • • •

• • •

1.2

Conducted a public forum to discuss the potential uses and benefits of WiFi access. Meet with City Council members, staff, and the Mayor to better understand goals and objectives. Reviewed various business models and their fit to the City’s goals and objectives. Reviewed potential digital inclusion strategies that leverage the proposed WiFi network and coordinate with other community inclusion efforts. Conducted research regarding the existing Internet providers in the region to determine the existing availability of services; to assess the factors that prevent or delay further private sector investment; and to determine how existing and planned service offerings may compete with or complement a WiFi offering. Prepared a conceptual WiFi design to better understand the potential investment requirement to deploy a City-wide WiFi network. Examined the potential financial viability of a low-cost Internet offering in the community. Outlined a series of considerations for inclusion in a Request-for-Proposal (RFP) to encourage a private provider to deploy a WiFi network in Tucson.

Study Goals

In summary, CTC and the City have identified the following goals and considerations for reaching the City’s objectives: Encourage the private sector to provide affordable access options. The market research conducted during this project showed a high-demand for a high-speed alternative priced to compete with dial-up services – under $25 per month for residences and under $30 per month for businesses. Leverage community assets to help ensure that the private sector investment can realize a reasonable return on investment. Deployment of a City-wide WiFi network will exceed $15 million plus the consumer installation costs. Getting a commitment to build a WiFi network will take innovative approaches to improve the WiFi business case. Increase awareness of the benefits of high-speed access. Many dial-up and other Internet users are unaware of or do not take advantage of on-line services beyond email. Encourage new applications, such as telemedicine and distance learning. The area school districts have initiated new learning activities in which high-speed on-line services is essential. Explore and encourage digital inclusion programs and offerings to enhance learning and employment opportunities. Although the use of high-speed access in Tucson is higher than the national average, there is a gap between users and non-users based upon income level. Maintain a separation between public safety applications and the proposed WiFi network. The City of Tucson has begun deployment of a WiFi network for support of public safety and other uses. The public safety network is designed to support critical outdoor traffic – not indoor retail services. Tucson AZ Wireless Feasibility


Minimize the City of Tucson’s required investment to obtain commitments from a provider to deploy a City-wide WiFi network. The City intends to attract a private sector company to build a WiFi network without direct City investment (or indirect investment through an anchor tenancy that would guarantee substantial annual payments to the provider from the City). This investment goal is quite different from other municipal WiFi efforts. The majority of municipalities that have obtained a commitment from a private provider to build a city-wide WiFi network have done so by agreeing to be an anchor tenant. Given that this model does not fit the City’s goals and objectives, alternative approaches are required. The Request for Proposal (RFP) should highlight the areas that City is willing to assist in to encourage providers to develop creative responses. Understand the City of Tucson’s costs to support a private provider deployment of a City-wide WiFi network. Even without a direct investment, the City of Tucson will see expenses related to the network deployment and operation. The anticipated expenses are dependant upon the model negotiated with the private provider and how aggressively the City wishes to monitor the installation and on-going operations.

1.3

Potential Benefits of a City-Wide WiFi Network

CTC and the City have identified a wide variety of benefits that are likely to flow from a public wireless network. The following are a few illustrative examples: Connection to the Community: The Tucson Community Services Department sees Internet as a basic tool to survive in society. From checking children’s grades and progress at school to filing job applications, Internet access is no longer a luxury. Staff does not find it usual to see people without furniture yet they have a computer. Parents need to connect with their children’s schools through the Internet. Job seekers need access to online employment ads. Seniors and disabled residents unable to directly participate in services need online access opportunities. Residents need access to City information after business hours. Increased access to the Internet through a City-wide WiFi initiative opens up the opportunity for the Department to provide online services and programs. Education: Instructional needs drive school initiatives. There is a movement in the educational arena to utilize video (streaming and on-demand) and other technology-based programs to enhance learning. Remote learning crosses school boundaries and brings learning into homes. Learning anywhere anytime is the future. The reluctance to fully embrace remote technology comes down to an equity issue. Not all students have computers, not all students have access to the Internet. A City-wide WiFi initiative provides a platform of consistent connectivity and overcomes a giant hurdle because equitable access is achieved. If ubiquitous Internet coverage is available it opens new doors for teaching. The opportunities for students and their parents are many. Access to school databases, software programs, online learning initiatives expands the school day into the at home hours and permits parents to become more involved in their children’s instruction. Tucson AZ Wireless Feasibility


Tourism: Tourism accounts for one of every 10 jobs in Tucson and adds over $1.8 billion per year to the local economy. Travel and tourism produce 40,000 jobs and is one of the most rapidly growing industries in Tucson. City-wide WiFi access raises the “attractability index” of the City which in turn increases tourism. Outside WiFi coverage is an assumed amenity in a town with Tucson’s climate. Visitors should be able to eat lunch and check email while in the Downtown area. “Stay with you connectivity” is important as visitors move from place to place.

1.4 Anticipated Costs Encouraging a private investor to build a City-wide WiFi network is not without costs for the City of Tucson. The anticipated implementation costs and annual expenses are dependant upon the private offering made and the degree of participation the City of Tucson desires or is required by the selected provider. The anticipated range of expenses for implementation support is $89,000 to $314,000. Assuming the City of Tucson covers power expenses for fifty percent of the Wireless Access Points (WAP), the annual expenses are estimated at $297,000 to $574,000. Without the power and attachment expenses the estimated annual expense ranges drops to $58,000 to $131,000. A City-wide WiFi deployment will cost at least $15 million plus consumer installation expenses. The cost estimate is dependant upon the deployment strategy and vendor selection. CTC estimates the implementation cost from $15.2 million to $29.4 million plus consumer costs. Assuming that 20 percent of households acquire a WiFi service, the estimated investment ranges from $25.6 million to $35.4 million. As an option, the City of Tucson may consider encouraging a targeted deployment in downtown or selected neighborhoods. For example the cost estimate, not including consumer costs, for a downtown deployment ranges from $476,000 to $654,000. The cost estimate for a deployment covering downtown and the Rio Nuevo neighborhoods ranges from $1.3 million to $2.0 million.

1.5 Summary of Study Recommendations As a result of the activities summarized above, CTC prepared the analysis, recommendations, and considerations provided in this report. These recommendations and considerations offer a variety of perspectives on how to encourage private investment and develop digital inclusion strategies. Most importantly, CTC recommends that the City release a RFP for a City-wide WiFi deployment. We further recommend that the structure of RFP allows for implementation options such as a downtown or other targeted deployments and independent proposals to address the digital inclusion elements. Our assessment is that the potential market is such that the City will attract bids from the private sector. In preparing the RFP, we suggest the following strategies: Tucson AZ Wireless Feasibility


First, we recommend a work session with selected Tucson staff and decision makers. The purpose of the work session is to refine and tailor the recommendations and considerations presented in this report. The work session will help Tucson staff and decision makers view the recommendations in context of the identified goals and objectives. Key Issues We recommend consideration of the following issues during the work session and drafting of the RFP: 1.

The assets that the City of Tucson has to offer and is able to leverage. The breadth of assets include; mounting facilities such as lamp posts and traffic lights, support from economic development, promotion of services to local residences or businesses, and others assets that will improve the profitability of the WiFi business. - Leverage of the City assets may reduce operating costs and the required investment for a City-wide deployment. - Leverage of the City brand name may help reduce customer acquisition costs.

2.

The level of control or influence does the City of Tucson requires. Attributes to define include: availability of service (percent of all households, percent of outdoor, etc), price and service levels, requirements for installation at consumers, and other factors that influence the consumer experience. - Private investors will tend to pursue the "easy to reach consumers first, a city sponsored deployment needs to ensure all citizens have an opportunity to acquire service. - The market for WiFi is for a high-speed low-cost (under $25 per month) alternative to dial-up.

3.

The level of political risk the City of Tucson is willing to absorb in order to attract a successful WiFi proposal. - Municipal WiFi is in an early development status and most business models are untested. A City-wide deployment either City or privatelyowned face many challenges – technologically and financially.

4.

The roles the City of Tucson will support in promoting the WiFi network including assistance with sales and marketing support of advertising in existing publications, and seeking anchor tenant commitments from area businesses. - Leverage of existing communication channels may reduce costs to obtain customers and increase awareness of the WiFi offering. - The success of the WiFi business hinges on the market share gained.

5.

The digital inclusion goals and objectives, including coordination with other agencies in Tucson.



- Digital inclusion is not just available and affordable of access. Digital inclusion efforts require coordination with user training, hardware access, and other elements. These issues are addressed in the specific recommendations below: 1.5.1 Leverage Marketing Assets and Resources to Attract the Investment for a Citywide WiFi Network Attracting an investment for a City-wide WiFi deployment, although not trivial, appears possible, without having to commit to a capital investment and/or tenant payments. In order to attract the investment, the City of Tucson needs to leverage marketing assets and resources that will: 1. Reduce operating costs such as pole attachment fees, energy fees, customer acquisition and maintenance. As is discussed in detail below, reducing or eliminating pole attachment and energy fees may make or break the business case. The annual estimated pole attachments and energy fees approach $1,000,000, the second highest expense (staffing is the number one expense for the provider). The City of Tucson may reduce this fee by allowing attachments to the street lights2,3 or providing Rights-of-Way access for solar-based solutions. 2. Reduce the required investment to deploy the City-wide WiFi network. Careful attention is required when specifying the geographic requirements. Removing requirements to serve parks, golf course, and other open areas will reduce the deployment costs—without subverting the objective of ensuring all households have the opportunity to participate. 3. Increase the number of anticipated consumers without lowering per customer contribution margins. The City of Tucson has an opportunity to leverage existing communication channels to educate residences and business regarding the benefits of high-speed access. Conducting education workshops is one example of a potential low-cost high-impact marketing effort that is relatively easy for the City of Tucson, but expensive for a new private provider. 1.5.2 Select the Appropriate Balance of Risk and Control Which Meets the Identified Objectives Given the requirement of not making a direct or indirect investment, the City of Tucson must consider a range of other alternatives- which may take a political or other risk. The Tucson model must seek to reduce customer acquisition costs, increase potential market share, reduce implementation costs, and reduce operational expenses. For example, the 2

The City of Tucson owns approximately 50 percent of the lampposts (ones located on major streets) and TEP owns the remaining lampposts (primarily in the neighborhoods). 3 Lampposts owned by the City of Tucson are metered which should enable the City to allow the WiFi provider to obtain energy at an incremental cost, rather than paying the minimum service connection fee ($10 plus per month) at each location.



City of Tucson may consider offering assistance in encouraging residents and businesses to subscribe at the political risks of appearing to favor a new entrant in the market over providers that have previously invested in the community. When refining the requirements and obligations for the City of Tucson and the RFP respondents, it is critical to select an appropriate level of risk, degree of control, and the share of potential rewards. All too often we see RFPs distributed to the WiFi provider community asking for financial commitments, free service, and other obligations with little or nothing in return. For example, a recent RFP developed and distributed by a municipality asked potential providers to build a city-wide network. In the RFP, the city asked for and required the responses to: • • • • • •

Offer a free service for a digital inclusion program. Provide funding for the digital inclusion program. Provide 100 percent geographic coverage in the community. Offer a $20 per month 1 Mbps Internet service to all residences and businesses. Provide free access for police, fire, and other public uses. Provide the city a percentage of subscription revenues received.

In return, the city offered to grant access to lamp posts and other assets for a monthly fee. Not surprisingly, no responses were received. When developing the RFP, it is important to remember the balance of risk and control. This relationship is illustrated in Figure 1-1. Figure 1-1: Balance of Risk and Control

The concept shown in Figure 1-1 is simple. The more control a municipality requires with respect to performance, coverage, pricing, and other attributes, the higher a financial (or other) risk the municipality must be willing to take.



It is also important to understand that Municipal WiFi is early in development from a vendor and business model perspective. Many vendors that are offering WiFi products today may not survive in the long term. In addition, many of the business models are untested or proven. Further, the promises of great financial municipal rewards are greatly overstated. If high-rates of return were guaranteed, the private sector would already have systems in place. As the City considers releasing an RFP and as it evaluates responses, it is critical not only to look at what the City of Tucson gets – but an examination of the potential for the provider to succeed. 1.5.3 Use the Market Research Findings to Demonstrate the Extent of the Potential Market CTC’s market needs analysis will be an important element of the future RFP because it demonstrates the demand and need for a low-cost high-speed service. Our research indicates that 35 percent of all households and 40 percent of business are willing to consider switching to a high-speed low-cost Internet service. This should serve as a powerful incentive to potential bidders who may respond to the City’s RFP. Pricing will play a key role in the development of a public or private venture into broadband Internet service provision. The success of a WiFi business hinges on the market share gained. We foresee there being little problem encouraging some residential high-speed subscribers to switch to this service; they will essentially receive the same (or better) service at a lower price. The key demographic in this business is that of dial-up users, who are perhaps less likely to be concerned with, or value, a faster speed. Their service provider decisions are largely based on price, and their perception of ease of use. By employing an overall cost leadership position strategy, a WiFi provider’s chances for success improve greatly. This involves slightly undercutting the monthly prices of national dial-up providers and marketing the product as a both lower cost and better quality service. The survey results indicate that the ideal price point is between $20 and $25 per month. Because the low-end pricing of this service is so crucial, the WiFi provider will be wary of attempting to “do too much.” The revenue per customer will be such that there will be little room for large expenses, and the provision of unnecessary or extravagant services will quickly erode net income and cash flow. The market positioning of this service is designed to provide essential high-speed Internet to residential and small business users. In negotiation with a potential provider, it is important to understand that the private and public sectors have conflicting objectives. The private sector will try to maximize revenues (for example, they will seek to keep capital investment to a minimum, do not serve hard-to-reach consumers, shift expenses to consumers, deploy a lower density of wireless access points, and charge consumers for installations). A public sector objective is to maximize participation (ensure all households have an opportunity to participate, make an extra effort to ensure consumers are connected).



1.5.4 Release and Publicize the RFP Widely As a starting point for the RFP distribution, we recommend submittal to the WiFi vendors. Many of the WiFi vendors are courting providers that are interested in building municipal networks and are likely to distribute to potential regional and other providers that we are not aware of. The WiFi vendors include: • • • • • • • • • • • •

BelAir Cisco Systems DigitalPath Firetide Motorola Nortel Proxim RoamAD Sky Pilot Strix Trango Systems Tropos

In addition to distributing the RFP to the identified WiFi vendors, we recommend distribution to the following providers: • • • • • • • • • • • • • • • • • • • •

20/20 Communications Arinc At&t Azulstar CenturyTel Cellnet Clearwire Communication Bridge Global EarthLink Frontier Kiva Networks GTS MetroFi MobilePro (NeoReach) Moving Target NextWLAN Northrup Grumman Onvoy Red Moon Redzone Wireless



• • • • • • • •

Razortooth Communications LLP (d/b/a RedTAP) SeaKay, Cisco, IBM (partnered in San Francisco) Softcom Unplugged Cities U.S. Internet U.S. Wireless Veraloft Others

1.5.5 Require a Robust Digital Inclusion Program Focused on Scalable Service CTC recommends the City of Tucson include in its RFP the following elements for a digital inclusion program. • •

• • •

• •

Require the provider to provide ubiquitous coverage – allowing all residents the opportunity to participate. Require a free service with at least 300 Kbps access as the starting point for digital inclusion. Do not accept a “walled garden” that only allows access to selected web-sites. Negotiate for speed of access of the free service over time (perhaps scaling with paid products). Avoid means-based inclusion approaches because they may add a barrier to participation. Require the provider to conduct education sessions as part of their core marketing efforts. The education sessions are to feature how high-speed access can reduce monthly household expenditures on telecommunication services. Concentrate WiFi provider efforts on low-cost or free access – not the other elements of the digital divide. Coordinate digital inclusion access efforts with other agencies such as the area schools.

CTC recommends these components of a digital inclusion program based on our experience, our observations of the public wireless movement nationally, and the results of our market research—which suggests that although residential Internet access in Tucson is far above the national average, there is still a digital divide among Tucson residents. Approximately 90 percent of all households in Tucson have a computer, and approximately 87 percent of all households have Internet access (80 percent with highspeed, 20 percent with dial-up). These percentages, however, vary greatly with household income. Of the households with annual incomes of less than $15,000, only 70 percent own a computer and 52 percent have high-speed Internet access. On the other end of the spectrum, 100 percent of households with income greater than $100,000 have a computer and nearly all have high-speed Internet access. This correlation is illustrated in Figure 1-2. Tucson AZ Wireless Feasibility


Figure 1-2: Correlation of Computer and Internet vs. Income

Percent of Households

Computer and Internet vs. Income 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Less than $15,000

$15,000 to $29,999

$30,000 to $49,999

$50,000 to $74,999

$75,000 to $99,999

$100,000 to $150,000 to $149,000 $199,000

Household Income Have Computer

Have Internet

Have High-Speed Internet

The digital divide has real consequences for the Tucson community. A portion of the population may be unable to take advantage of educational opportunities; may be unable to participate in programs and services offered through web-based applications; and have no access to quality jobs because of inability to search the web for employment information or apply for jobs online. Tucson schools use computer-based curricula as a complementary educational tool. Administrators and teachers recognize web-based, athome learning as expanding the boundaries of school and providing a longer school-day, but they are cognizant that not all students have access to the Internet. The interviews indicated that as computers become more affordable, the digital inclusion challenge that needs to be addressed is not as much equipment-based but rather how to overcome the monthly Internet access charge. Many municipal WiFi agreements include a requirement for the provider to fund digital inclusion programs. These requirements however, are conditioned to profitability benchmarks that might be difficult to reach if at all. Given this, it is quite optimistic to expect that the WiFi provider will provide the access and fund the other elements of digital inclusion. It is unrealistic to expect the private sector to voluntarily switch for profit business models and offer free Internet access. To address this reality, many municipalities, libraries, school districts, and park districts are providing WiFi hotspots for public use. While this is an important first step, to serve the critical need for “information anywhere, anytime,” these shared-use public facilities need to complement private access. A Citywide WiFi network in Tucson takes public shared-use to the next level. It permits every Tucson home and business to have Internet access. Tucson AZ Wireless Feasibility


Bridging the digital divide brings benefits to all. Access to web-based services and programs is cost-efficient for the providers (schools, governments, private-sector, etc.) and brings the users not only convenience but fair and equal access. By considering a City-wide WiFi Program, Tucson is poised to provide a model for mitigation of the digital divide in the community. 1.5.6 Plan for Incremental Fiber Deployment to Meet Long-Term Broadband Goals A combination of wireless, fiber, and other connectivity technologies are required to meet the entire breadth of private and public connectivity needs. Obtaining a City-wide WiFi network is just a start -- not the ending. We strongly recommend that the City of Tucson view the WiFi effort as a necessary first step, then look at ways to embrace and encourage incremental steps toward fiber deployment to large business and institutions, then smaller business, and eventually to all households. Although wireless technologies will continue to evolve at a rapid pace, wireless will not replace fiber for delivering high-capacity circuits to fixed locations. In addition, fiber will always be a necessary component of any wireless network because it boosts capacity and speed. The industry observers and experts that propose wireless Internet access solutions will reduce the need for fiber - predict a shift to wireless for fixed access. Figure 1-3 illustrates both fixed use and portable use of wireless increasing over time. This scenario requires that wireless technologies capabilities increase substantially, meeting expanding capacity and speed needs. Figure 1-3: Wireless Access-Prediction 1



Another scenario is that while portable use continues to grow, fixed use will flatten and possibly decline. In this scenario, shown in Figure 1-4, alternative fixed based technologies such as FTTP become more prevalent. Figure 1-4: Wireless Access-Prediction 2

CTC believes the second scenario is most likely in the long-term. Fiber offers the greatest future proofing and long-term growth potential. However, mobile wireless use will continued to grow since fiber solutions do not deliver mobility. The United States does not currently have a national broadband policy that encourages fiber-to-the-premises development (unlike, for example, many European countries). As a result, fiber-to-the-premises solutions are unlikely unless the City or other public entity explore ways to encourage investment and explore other business models.



2. Market Assessment This section provides a detailed summary of the survey4 conducted with randomly selected residences and businesses located within Tucson. The survey results projects a variety of consumer behaviors including computer and Internet use, sensitivity to switch Internet service providers based on attributes such as speed and price, and perceptions regarding the role of the City of Tucson in ensuring high-speed access is available. Market Insights Residential Internet Use Approximately 70 percent of Tucson homes have high-speed Internet access, which is higher than national averages. The latest report from the Pew Internet and American Life Project1 indicates that the national average is 42 percent of all households having highspeed access. DSL Availability In Tucson cable modem service dominates high-speed access with a 65 percent market share, while DSL accounted for 26 percent. Based upon national based survey findings5 and our experience in other communities, this is a potential indication that DSL coverage in Tucson is limited or has spotty coverage in residential areas. The report from the Pew Internet and American Life Project1 indicates that DSL overtook cable modem service as the most widely used residential high-speed access in 2006. The Pew Report indicated that DSL accounted 50 percent of the residential high-speed market, while cable modem accounted for 41 percent. The Pew Report indicated that substantial prices cuts accounted for the gains seen by the DSL providers. The Pew Report is not without controversy. Another research firm, Leichtman Research Group Inc., disputes the data. The latest findings from Leichtman Research Group claim that cable modem use still leads high-speed with a 52 percent share, compared with DSL's 46 percent. Regardless of which survey provides the most accurate snapshot, the gains made by DSL providers are impressive. As indicated in the Pew Report, the gains have been initiated by aggressive pricing and tiered service offerings which give consumers more choices. However, The Pew Report appears not to consider another key factor – whether DSL is available at a given consumer location. Our survey findings and competitive analysis in other communities have shown that when DSL market share is low, DSL availability is limited or has spotty coverage. We are not surprised with different findings since DSL 4

The telephone survey was contracted with Advanced Data-Comm (ADC), Dubuque Iowa and the initial survey analysis was contracted with Clearspring Energy Advisors, Madison Wisconsin.

5

Home Broadband Adoption 2006, Pew Internet & American Life Project, May 2006



availability in a community is not a consumer behavior attribute and DSL availability varies widely from community-to-community. In other words if the two surveys did not factor in the variations in DSL availability, differences in the survey findings are expected. Consumer Expectations For residential consumers, we observed significant differences between importance and satisfaction for price and connection speed of their Internet service. This may indicate a potential market opportunity for a low-cost high-speed service. It is however important to understand that perceptions a connection speed will vary from consumer-to-consumer. For example, from experience with other communities that have deployed City-wide WiFi, consumers that switch from dial-up to a 1 Mbps WiFi service are ecstatic about the performance, while previous cable modem users are generally dissatisfied with the download speeds. Given that in Tucson over 50 percent of residential Internet users have cable modem service(vs. 20 percent dial-up), offering a higher tier connection speed (2.5 Mbps or greater) will be important. The gaps between importance and satisfaction are greater for business users. We observed significant gaps for speed, price, reliability, and security. In addition to the speed perception indicated above, marketing efforts for business users will need to specifically address the reliability and security attributes of WiFi. Tucson Brand Image We did not observe any significant consumer interest between a WiFi service that is endorsed by the City of Tucson versus a service not endorsed. This indicates that Tucson brand image may not have a significant value for a WiFi offering from a marketing perspective. Factors Impacting Residential Internet Use We observed the key factors impacting computer ownership and acquisition of highspeed Internet service. 1.

Income: There is a 2 to 1 difference (50 percent vs. 100 percent) in having highspeed Internet at home between low-income and high-income households. Computer access has a similar pattern, but a reduced ratio (70 percent vs. 100 percent).

2.

Age of the person responsible for paying household bills: Households having a computer at home dropped considerably for respondents over 65. Having high-speed Internet at home declined as age increased.

3.

Having school aged children at home: We observed a slight increase of computer ownership and having high-speed Internet access for households with school age children to those households without school age children.



Residential Results The key findings of the residential market research study include: •

Approximately 90 percent of Tucson homes have a computer, 87 percent have Internet access, and 70 percent have high-speed Internet access.

•

The mean price paid for residential Internet service is approximately $39 per month (national average is $32 per month for DSL service and $41 per month for cable modem service).

•

Low income homes and homes with older adults are less likely to have Internet access. Homes with preschool or school-aged children are more likely to have Internet access.

•

Connection speed is the most important aspect of Internet service, followed by the ability to use telephone and Internet simultaneously and price of service.

•

More than 50 percent of residential respondents are willing to switch to highspeed Internet service for a price of less than $20 per month, while less than 10 percent are willing to switch for a price greater than $41 per month.

•

When asked about the role the City should play in development of wireless Internet service, 41 percent indicated that the City should promote the competitive market while 23 percent said the City should have no role. Only 10 percent indicated that the City should install a wireless network.

Business Results The key findings of the business market research study include: •

Approximately 93 percent of Tucson businesses have Internet access, and 80 percent have high-speed service. Of those with Internet service, 42 percent have DSL, 30 percent use a cable modem, and 14 percent have dial-up service.

•

The mean price paid for business Internet service is approximately $60 per month, excluding the very large users with monthly prices greater than $300.

•

Reliability is the most important aspect of Internet service for businesses, followed by on-line security and connection speed.

•

More than 50 percent of business respondents are willing to switch to high-speed Internet service for a price of less than $20 per month, while less than 15 percent are willing to switch for a price greater than $41 per month.

•

When asked about the role the City should play in development of wireless Internet service, 41 percent indicated that the City should promote the competitive market while 22 percent said the City should have no role. Only 14 percent indicated that the City should install a wireless network.



The remainder of this section summarizes the findings from the residential and business Internet use surveys.

2.4 Residential Survey Results We conducted telephone interviews of 401 randomly-selected residences in the City of Tucson between December 15, 2006 and January 5, 2007. Given approximately 195,000 households in Tucson, 401 responses provide results at the 95 percent probability level with a confidence interval of ±4.9 percent at the aggregate level. The residential survey results presented in this report are weighted by the age of the respondent to reconcile the differences between the ages of survey respondents and the Tucson population as a whole. The 2000 Census is used as the benchmark for the population distribution by age cohort (for all persons age 18 and older). The weighting calculations are shown in Table 2-1. Table 2-1: Residential Weighting Calculations

Survey Response Weighting by Age Age Cohort 18 to 24 years 25 to 34 years 35 to 44 years 45 to 54 years 55 to 64 years 65 years and older


Survey % 2.8% 11.6% 17.2% 19.2% 25.0% 24.2%

Census % 17.3% 21.1% 19.9% 15.9% 9.8% 16.0%

Weight 6.23 1.81 1.16 0.83 0.39 0.66


The households responding to the survey were dispersed geographically across the City of Tucson. A map showing the locations of the respondents is shown in Figure 2-1. Figure 2-5: Residential Survey Respondents



2.4.1 Residential Computer and Internet Characteristics As shown in Figure 2-2, approximately 90 percent of Tucson residents have a computer in their house. 81 percent of homes have a desktop and 45 percent have a laptop (36 percent have both). Figure 2-6: Households with a Computer

Q1: Have a personal computer in home? No personal computer 10%

Desktop only 45%

Both desktop and laptop 36% Laptop only 9%

N=401

Of the 10 percent that do not have a computer, the reasons cited were: No need (63 percent); Can access elsewhere (43 percent); Do not know how to use (38 percent); and Expense (33 percent). The locations of the respondents with a computer at home are shown is Figure 2-3. Comparing Figure 2-2 and Figure 2-3, the computer access at home appears lowest in the South side of Tucson. Throughout this section we present analysis and observations regarding what demographic attributes may account for variations in computer availability and Internet access for area residences.



Figure 2-7: Residential Survey Respondents with a Computer at Home

Approximately 87 percent of Tucson residents (Figure 2-4) have Internet access in their home, and another 1.8 percent plan to obtain Internet access within the next year. Figure 2-8: Households with Internet Access

Q3: Have Internet access from home? No 13%

Yes 87%


N=399


Of the 13 percent who do not have Internet access, the main reasons cited were: Do not have a computer (64 percent); Too expensive (15 percent); No need for Internet (9 percent); and Can access the Internet elsewhere (6 percent). Of those with Internet access, more than one-half connect with a cable modem while 20 percent have telephone dial-up access. The type of Internet access is shown in Figure 2-5. Figure 2-9: Type of Internet Access in Households

Q6: How do you access Internet at home? Wireless 6% Satellite 1%

Other 0%

Telephone line shared w/voice 16% Telephone line dedicated line 4%

Cable modem 52%

DSL 21%

N=344

The locations of the type of Internet access used by the respondents are shown in Figure 2-6. As seen in Figure 2-6, the distribution of the type of service used is not uniform. For example, there appears to be some neighborhoods (for example North of W. Ina Road and West of Interstate 10) that DSL is not used. This may indicate gaps of DSL availability. Potential service availability gaps are explored further in Section 3.



Figure 2-10: Residential Survey Respondents - Type of Internet Access at Home

Dial-Up DSL

Cable Modem Other

There is a correlation between household income and both computer ownership and Internet access. Of the households with annual income less than $15,000, only 70 percent own a computer and 52 percent have high-speed Internet access. On the other end of the spectrum, 100 percent of households with income greater than $100,000 have a computer and nearly all have high-speed Internet access. This correlation is shown in Figure 2-7.



Figure 2-11: Correlation of Computer and Internet vs. Income

Percent of Households

Computer and Internet vs. Income 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Less than $15,000

$15,000 to $29,999

$30,000 to $49,999

$50,000 to $74,999

$75,000 to $99,999

$100,000 to $150,000 to $149,000 $199,000

Household Income Have Computer

Have Internet


There is also a statistically-significant correlation between the presences of preschool or school-aged children in the home and Internet access (see Figure 2-8). Approximately 93 percent of homes with children have some form of Internet access, and 77 percent or homes with children have high-speed Internet access. Although a greater share of homes with children have a computer, the difference is not statistically significant. Figure 2-12: Correlation of School Aged Children in Home vs. Computer and Internet

School Children vs. Computer and Internet

100%

Percent of Respondents

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Have Computer

Have Internet

Have School Children



No School Children


There is a correlation between the age of the respondent (person primarily responsible for paying telephone bills) and computer ownership and Internet access. Approximately 90 to 95 percent of respondents under age 65 had a computer, while only 75 percent of respondents 65 and older had a computer. The percent of respondents with high-speed Internet access drops from 90 percent for respondents under age 25 to 46 percent for respondents aged 65 and older. Figure 2-13: Correlation of Age vs. Computer and Internet Age vs. Computer and Internet 100%


90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 18 to 24 years

25 to 34 years

Have computer


35 to 44 years Have Internet

45 to 54 years

55 to 64 years

65 years and older



More than two-thirds of Tucson Internet users indicate that their current connection speed is fast enough for their needs. This varies considerably based upon the type of connection currently in use. These relationships are shown in Figure 2-10 and Figure 2-11. Figure 2-14: Internet Speed Perception

Q7: Internet speed fast enough? Fast enough 70%

Very slow, would like much higher speed 8%

N=346

Fairly slow, wouild like much higher speed 8%

Not bad, but not quite fast enough 14%

Less than one-third of dial-up Internet users indicate that their connection speed is fast enough for their needs. This compares to 70 percent of DSL users and more than 80 percent of cable modem users. Figure 2-15: Internet Connection Type vs. Speed Satisfaction

Q6: Internet Connection x Q7: Speed Satisfaction 100% Percent of Respondents

90% 80% 70% 60% Dial-up

50%

DSL

40%

Cable

30%

Other

20% 10% 0% Fast enough


Not bad, but not Fairly slow, Very slow, quite fast wouild like much would like much enough higher speed higher speed


2.4.2

Residential Internet Uses

Figure 2-12 shows how the residents use the Internet. More than 80 percent of respondents use the Internet for e-mail, general browsing, travel planning, or obtaining news. Between 60 and 80 percent use the Internet for paying bills or shopping. Figure 2-16: Residential Internet Use

Q9: Internet used for... 0%

20%

40%

60%

80%

100%

E-mail General browsing Travel planning Obtaining news Paying bills Shopping Medical info Education Streaming music/video Local govt. service Instant messaging Download music/video Working from home Gaming Home-based business



2.4.3 Residential Internet Providers and Price The top Internet providers in Tucson are Cox Communications, Qwest, America Online, and Comcast. There are also a large number of other providers with less than five percent of the market each, including EarthLink, MSN, Juno, NetZero, and AT&T. Tucson market shares are show in Figure 2-13. Figure 2-17: Residential Internet Market Shares

Q10: Who is main Internet provider? Other (none >5%) 20%

Cox Communications 45%

Comcast 8%

America Online (AOL) 9%

Qwest 18%

N=344

Figure 2-14 shows the geographic distribution of where the providers are delivering service. As expected, Comcast and Cox have a service footprint defined by the cable television franchise and little cross-over is seen.



Figure 2-18: Residential Internet Provider Customers

AOL Comcast

Cox Qwest



The average monthly price paid for Internet service is $39. Most Cox Communications and Comcast customers pay $36 or more for their Internet services. Qwest customers dominate the $26 to $35 price range, while AOL and other providers dominate the $25 or less price range. The relationship between the price paid for service and the providers is shown in Figure 2-15. Figure 2-19: Internet Prices vs. Internet Provider

Q11: Internet Prices x Q10: Internet Provider 80 Number of Respondents

70 60 Other

50

Comcast America Online (AOL)

40

Qwest

30

Cox Communications

20 10 Free

Under $20

$21 to $26 to $31 to $36 to $41 to $51 to $25 $30 $35 $40 $50 $60

Over $60

Montlhly Price



2.4.4 Residential Internet Aspects When asked about the most important aspect of Internet service, connection speed ranks as the single most important item. The ability to use the telephone line and Internet simultaneously also ranks high, but is only applicable to the 20 percent of current Internet users that connect by telephone line6. Connection speed ranks above the price paid and the ability to contact the provider in terms of importance to users. Parental control and the existence of a local office are of lower importance. Figure 2-20: Importance of Internet Characteristics

Q12: Importance of Internet Characteristics 100%


90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Connection Telephone Speed & Internet same time

Price

Important (8-10)

6

Contact provider

Nuetral (4-7)

Mobility within Tucson

Parental control

Local Office

Not Important (1-3)

See Figure 2-5 (Question 6).



As illustrated in Figure 2-17, most people are satisfied with the ability to use the telephone and Internet at the same time, as would be expected since only 16 percent of respondents currently have a shared line. Approximately two-thirds are satisfied with their connection speed, but only one-half are satisfied with the price they are paying. More than one-third of respondents are dissatisfied with the level of parental control currently available. Figure 2-21: Satisfaction of Internet Characteristics

Q13: Satisfaction with Internet Characteristics 100%


90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Telephone Connection & Internet Speed same time

Contact provider

Satisfied (8-10)


Price

Nuetral (4-7)


Local Office

Parental control

Not Satisfied (1-3)


A comparison of the mean importance and satisfaction with different aspects of current Internet service provides insight into the areas where expectations are not being met, are being met adequately, or are being exceeded. These results are shown in Figure 2-18. Figure 2-22: Comparison of Importance and Satisfaction of Internet Characteristics

Mean Importance or Satisfaction

Internet Importance and Satisfaction (Q12 & Q13) 10 8

8.3

7.9

7.6

7.2

7.6

8.1

8.2

7.3

6.4

6 5.0

5.0

5.9

5.6

6.4

4 2 0 Price

Local Office Connection Speed

Parental control

Importance


Contact provider

Satisfaction

Telephone & Internet same time



In the comparison, price and connection speed have significant differences between importance and satisfaction. Addressing theses gaps is important in a new service offering. The significance of these and other attributes are shown in Table 2-2. Table 2-2: Significance of Importance and Satisfaction Gaps of Internet Characteristics

Mean Importance

Mean Satisfaction

GAP* < -- >

Price (n=345)

7.9

7.2

-0.7

Expectations not met

Local office (n=322)

5.0

6.4

1.4

Expectations exceeded

Connection speed (n=343)

8.3

7.6

-0.7


Parental control (n=308)

5.0

5.6

0.6


Ability to contact provider (n=337)

7.6

7.3

-0.3

Not significant

Use telephone & Internet at same time (n=340)

8.1

8.2

0.1

Not significant

Mobility within Tucson (n=296)

5.9

6.4

0.5


Significance?

*Difference is statistically significant: p3%) 22% N = 216

Figure 2-51 shows the geographic distribution business Internet services. As expected we see boundaries between Comcast and Cox due to their franchised service areas. We do however see potential cluster of AOL’s customers, especially along S. Kino between E Broadway and Hwy 210. Tucson AZ Wireless Feasibility


Figure 2-55: Business Internet Provider Customers

AOL Comcast

Cox Qwest Other

The mean price paid for Internet service is approximately $75 per month across all respondents, or $60 per month excluding the very large users with prices in excess of $300 per month. Approximately two-thirds of businesses pay between $25 and $99 per month for Internet service, while 18 percent pay less than $25. Only 17 percent of businesses pay $100 or more for Internet service. Figure 2-56: Tucson Role in Wireless Internet

Q12: Price Paid per Month for Internet


40 35 30 25 20 15 10 5 0 Less than $25

$25 to $49

N = 161


$50 to $99

$100 to $149

$150 to $199

$200 to $299

$300 or more

Monthly Cost


Figure 2-53 graphs the Internet connection type and the monthly service price. Most of the respondents paying less than $25 per month for Internet service connect using a telephone line; although some indicate that they have DSL or cable modem service. Most respondents paying $300 for Internet service connect via a frame relay or a T1 line. Figure 2-57: Internet Connection vs. Monthly Price

Q9: Internet Connection x Q12: Monthly Price 70 Number of Respondents

60 50

Other

40

Telephone line Frame Relay or T1

30

DSL

20

Cable modem

10 0 Less than $25

$25 to $49

$50 to $100 to $150 to $200 to $300 or $99 $149 $199 $299 more

As seen in Figure 2-54, approximately 96 percent of the businesses surveyed indicated that decisions regarding Internet service are made, at least partly, at their Tucson office location. Figure 2-58: Location of Connectivity Decisions Q3: Where Internet Connectivity Decisions Made Local (within Tucson) 91%

Combination 5%


Non-local (outside Tucson) 4%


2.5.3 Business Internet Aspects

Reliability is the single most important aspect of Internet services for businesses. On-line security ranks second, followed by connection speed. Price is in the middle level of importance compared to other aspects about which respondents were asked. Mobility ranks of the lowest importance among these Internet aspects. Figure 2-59: Importance of Internet Aspects

Q13: Importance of Internet Aspects 100 Percent of Respondents

90 80 70 60 50 40 30 20 10 0 Q13c: Reliability

Q13f: OnQ13a: line security Connection speed

Q13e: Dial- Q13b: Price up elimination

Important (8-10)

Neutral (4-7)

Q13d: Provider choice

Q13g: Web site blocking

Q13h: Mobility within Tucson

Not important (1-3)

In general, business respondents are quite satisfied with the reliability of their current Internet service and are relatively satisfied with their connection speed. This is illustrated in Figure 2-56.



Figure 2-60: Satisfaction with Internet Aspects

Q14: Satisfaction with Internet Aspects 100 Percent of Respondents

90 80 70 60 50 40 30 20 10 0 Q14c: Reliability

Q14f: On- Q14e: Dialline security up elimination

Q14a: Q14g: Web Q14b: Price Connection site blocking speed

Satisfied (8-10)

Neutral (4-7)

Q14d: Provider choice

Q14h: Mobility within Tucson

Not satisfied (1-3)

Comparisons of the importance and satisfaction with different aspects of Internet service provide insight into the areas in which the current market is over-providing or underproviding different aspects of Internet service. Figure 2-57 compares Internet service importance and satisfaction. Figure 2-61: Comparison of Importance and Satisfaction of Internet Aspects

Importance and Satisfaction of Internet Aspects Mean Response (10=highest)

10 9 8 7 6

9.4 8.6 7.5

9.1 8.2

8.1

7.8 7.1

6.5

8.1

8.1 6.7

6.7 5.7

5

5.2

5.1

4 3 2 1 0 Connection speed

Price

Reliability

Provider choice

Importance


Dial-up elimination

On-line security

Web site blocking


Satisfaction


Table 2.3 indicates that the market is not meeting expectations for connection speed, price, reliability, or on-line security. All of these aspects ranked statistically higher in mean customer importance than in mean customer satisfaction. Table 2-3: Significance of Importance and Satisfaction of Internet Aspects

Mean Importance

Mean Satisfaction

GAP* < -- >

Connection speed (n=230)

8.6

7.5

-1.1


Price (n=229)

7.8

7.1

-0.7


Reliability (n=230)

9.4

8.1

-1.3


6.5

6.7

0.2

Not significant

8.2

8.1

-0.1

Not significant

9.1

8.1

-1.0


1.0


-0.1

Not significant

Provider choice (n=220) Dial-up elimination (n=220) On-line security (n=230)

Web site blocking 5.7 6.7 (n=228) Mobility within Tucson 5.2 5.1 (n=225) *Difference is statistically significant: p